Nice things are nice to have, but they can quickly consume our lives. The short term consumption of things can put us in a state of living paycheck to paycheck. We want to look rich and enjoy life’s pleasures, but wealthy people don’t live paycheck to paycheck. They spend under their means, whatever that is, and create more wealth. Hence the phrase the rich get richer and the poor get poorer.
Bill has a nice house, a shiny new car, and a vacation scheduled to Europe next month. Everything about Bill makes you think that he has a lot of money. I mean, how else would you explain all this stuff. But, what if I told you Bill was broke. You see, Bill makes really good money, but he’s in a lot of debt. In fact, if you added up all of his possessions and subtract his debts, you would get a negative number. If Bill lost his job or had a big financial emergency happen, he would be in big trouble.
Frank, on the other hand, appears like a normal guy. Frank has the same job and income as Bill, but not all the bills (get it Bill=bills). Frank is a millionaire. If you added up all of Frank’s possessions minus his debts you would get a number that exceeds a million dollars. If something financially bad happens in Frank’s life, he would be just fine. Even if Bill gets a promotion, Frank would still have a higher income because of all of his investments. Investments in which he earns money without having to actually do anything. He could sit on the couch all day and still earn an income.
How do you get from a Bill to a Frank?
Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.
1. Buy the house you can afford, not the most expensive house you can get a loan for.
Your mortgage payment should not be more than 25% of your take home pay.
Having a good down payment not only keeps you from paying PMI, but will also lower you monthly mortgage payment (also less interest). It is also better to finance for a 15 year versus a 30 year loan. It may cost slightly more a month, but you will save a fortune on interest and pay it off in half the time. We are thinking about the long game here.
2. Buy used cars with low mileage.
Do you want a quick way to lose a ton of money really quick? Buy a new car and drive it off the lot. Thousands of dollars gone.
Vehicles drop in value dramatically after the first year. Let some other idiot pay this penalty and put the extra cash somewhere else.
Buy for reliability. Check with Consumer Reports and avoid anything that will potentially break down a lot.
Get something that gets good gas mileage.
Be practical. You may be expecting your first child, but do you really need three rows of seats in a huge SUV. It’s a tiny baby not a Sasquatch.
If you buy brand new, you are paying for a new car smell for a short time. The flawless finish will get scratches from normal driving. There is no way around this.
3. Eat out less.
Consistently eating out at restaurants will add up over time. Not to mention the negative health effects if you are eating unhealthy food.
Preparing food at home will save lots of money, and it also creates great quality time with family and friends. Cook together, eat at the table together, and talk.
Bring snacks and lunches to work or whenever leaving the house for an extended period of time.
4. Free Entertainment
Go to the park, library, or even hike a trail. Fun doesn’t mean expensive. Look up attractions that are free in your area.
If you like to do something that costs money, look for discounts.
If we command our wealth, we shall be rich and free. If our wealth commands us we are poor indeed.
5. Spend time with your spouse and children.
Now, this isn’t for financial gain on its own terms, but….. There are financial costs to neglecting your family. Divorce isn’t cheap.
6. Don’t borrow money.
If you borrow money you are just making someone else rich by paying them interest. Interest is only good if you are earning it on your investments.
7. Quit updating your home every time HGTV comes out with a new show.
Dont replace things that still work just because that is what they do on HGTV. Get your worth out of something. You do not need a new set of appliances just because your microwave goes out.
By the time something is filmed, edited, and aired on tv it is already out of style anyways. Skip the trends and save.
8. Dont buy tech every time the new design releases.
Seriously, you just paid how much for a cell phone? Am I the only one who thinks it is a bit ridiculous to pay almost a thousand dollars for a cell phone? Buy the phone that fits your needs and hold onto it.
It’s not how much you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.
Save and Invest
Take all of this extra money, build up a good savings in the bank, and invest. Like the quote says above, make your money work hard for you.